Massive turnover despite price correction on the BSE

WANETSHA MOSINYI
Staff Writer | Tuesday June 17, 2008 00:00

In its annual report released recently, the BSE said it recorded an average daily turnover of P3.4 million, which was an increase from P1.7 million in the previous year.

BSE CEO Hiran Mendis said the price correction could not be considered to have been a negative development since it helped to align market prices with value.

The number of shares traded on the local bourse also increased from 87.2 million in 2006 to 124.6 million in 2007, registering a growth of 42.9 percent.

'There is doubt that the excellent returns in 2006 translated into increased interest in the market from investors resulting in this performance,' the report says

The Domestic Company Index (DCI) closed the year at 8,421.6 points, appreciating by only 36 percent in comparison to a growth of over 74 percent in 2006.

The decline in the DCI is attributed to a correction in market prices that commenced from the third quarter of 2007. More specifically, the report says the DCI appreciated by 25.8 percent and 23.3 percent in quarters 1 and 2, respectively.

The index began losing momentum in Quarter 3 and declined by 13.7 percent in Quarter 4. The DCI reached its highest ever level of 9,879.4 on July 31, 2007.

Meanwhile ,the Foreign Company Index (FCI) recorded growth of 24 percent in the year under review compared to 78 percent and 57 percent in 2005 and 2006 respectively.

The All Company Index (ACI) grew by 24.2 percent in 2007 in comparison to 58 percent in 2006 and nearly 75 percent in 2005.

Mendis said although the decline in the price indices coincided with a general decline in stock market indices around the world, reasons for the decline in Botswana were in no way related to the sub-prime crisis and recession fears in the United States which resulted in a contagious effect in many markets.

In markets where liquidity is low, price discovery is bound to be inefficient and a downward correction in market prices tends to be sticky, Mendis said.

In the case of Botswana, the problem is further exacerbated by the fact that 30 percent of pension fund collections have to be invested in local assets, which are in short supply.

Another positive development during 2007 was the gain in BSE's market capitalisation. The domestic company market capitalisation increased from P23.8 billion in 2006 to P32.7 billion as at the end of December 2007, growing by 37.4 percent. 

Foreign company market capitalisation increased from P510.4 billion in 2006 to P535.3 billion in 2007, appreciating by 4.9 percent.

The domestic market capitalisation relative to GDP was 37.1 percent as of end of June 2007, in comparison to 28.4 percent in 2006.

'The increase is an indication of the growing importance of the equity market to Botswana's economy,' Mendis said.